By: Charles J. Stansberry, Jr.

On February 1^st, the U.S. House of Representatives passed the Deficit Reduction Act of 2005, budget legislation that imposes new restrictions on Medicaid, making it more difficult to qualify for federally paid nursing home care.  President Bush signed the new legislation into law on February 8^th.

Effective February 8^th, Medicaid’s “lookback” period for all asset transfers has been extended from three to five years.  More importantly, the new law drastically changes the start date of the penalty period created by the transfer of assets. 

Under the old rules, this penalty started as of the date of transfer.  Now, this penalty does not begin until the individual transferring the assets enters a nursing home and becomes otherwise eligible for Medicaid.  Simply put, the penalty period, during which an individual is ineligible for Medicaid and must privately pay for their care, does not begin until the nursing home resident has spent down his assets below the Medicaid limits ($2,000 for a single individual and between $52,000 and $101,540 for a married couple). Because of this change in the start date and the fact that the new law aggregates all transfers made within the 5 year lookback in calculating the penalty, many nursing home residents may find that they do not have sufficient assets to pay for their nursing home care during the penalty period.

• Other highlights of the Deficit Reduction Act of 2005 include:
  Individuals with home equity exceeding $500,000, or $750,000, at the option of the state, will be ineligible for Medicaid where no spouse or minor or disabled child resides on the property.
• New rules for the treatment of annuities, including a requirement that the state be named as the remainder beneficiary in order for an annuity to be treated as an exempt asset.
• Continuing Care Retirement Communities lawfully can require applicants to spend on their care any resources declared for purposes of admission as part of the application process.  In addition, refundable entrance fees will be treated as a countable asset in most cases.
• States are barred from “rounding down” fractional periods of ineligibility when calculating the penalty period resulting from asset transfers.

The new federal law applies to all transfers made on or after the enactment date of February 8, 2005.  Although it will be necessary for Wisconsin to pass legislation in order to be in compliance with the new federal law, it is unclear at this time as to whether this delay will provide any additional time for individuals to take steps to protect assets in case they later require long-term care.